Explain the analytical procedures that an auditor can adopt to verify inventories.

Auditing and Assurance Revision Questions and Answers

Answer

Analytical procedure for inventories: The auditor can adopt the following analytical procedures to verify inventories.
 Quantitative reconciliation of opening stock, purchases, production, sales and closing stock
 Comparison of closing stock quantities and values with those of previous year.
 Comparison the inventory turnover ratio with that of the previous year and industry average, if available.
 Comparison of the current year gross profit ratio with that of previous year.
 Comparison of actual stock, purchase and sales figures with the budgeted one.
 Comparison of raw material yield/wastage with previous year.



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